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Can Foreign Aid Buy Growth?

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  • William Easterly

Abstract

The widely publicized finding that "aid promotes growth in a good policy environment" is not robust to the inclusion of new data or alternative definitions of "aid," "policy" or "growth." The idea that "aid buys growth" is on shaky ground theoretically and empirically. It doesn't help that aid agencies face poor incentives to deliver results and underinvest in enforcing aid conditions and performing scientific evaluations. Aid should set more modest goals, like helping some of the people some of the time, rather than trying to be the catalyst for society-wide transformation.

Suggested Citation

  • William Easterly, 2003. "Can Foreign Aid Buy Growth?," Journal of Economic Perspectives, American Economic Association, vol. 17(3), pages 23-48, Summer.
  • Handle: RePEc:aea:jecper:v:17:y:2003:i:3:p:23-48
    Note: DOI: 10.1257/089533003769204344
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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/089533003769204344
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    References listed on IDEAS

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    1. Henrik Hansen & Finn Tarp, 2000. "Aid effectiveness disputed," Journal of International Development, John Wiley & Sons, Ltd., vol. 12(3), pages 375-398, April.
    2. Esther Duflo, 2001. "Schooling and Labor Market Consequences of School Construction in Indonesia: Evidence from an Unusual Policy Experiment," American Economic Review, American Economic Association, vol. 91(4), pages 795-813, September.
    3. World Bank, 2000. "Can Africa Claim the 21st Century?," World Bank Publications, The World Bank, number 22962, August.
    4. P. Guillaumont & L. Chauvet, 2001. "Aid and Performance: A Reassessment," Journal of Development Studies, Taylor & Francis Journals, vol. 37(6), pages 66-92.
    5. Papanek, Gustav F, 1972. "The Effect of Aid and other Resource Transfers on Savings and Growth in Less Developed Countries," Economic Journal, Royal Economic Society, vol. 82(327), pages 934-950, September.
    6. Collier, Paul & Dollar, David, 2002. "Aid allocation and poverty reduction," European Economic Review, Elsevier, vol. 46(8), pages 1475-1500, September.
    7. Hansen, Henrik & Tarp, Finn, 2001. "Aid and growth regressions," Journal of Development Economics, Elsevier, vol. 64(2), pages 547-570, April.
    8. R. Lensink & H. White, 2001. "Are There Negative Returns to Aid?," Journal of Development Studies, Taylor & Francis Journals, vol. 37(6), pages 42-65.
    9. World Bank, 2002. "World Development Indicators 2002," World Bank Publications, The World Bank, number 13921, August.
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